A Presentation byA Presentation by

  

Craig JaggerCraig JaggerChief EconomistChief Economist

House Committee on Agriculture House Committee on Agriculture

For the Session:For the Session:

Assessing the Equitability of Farm Program BenefitsAssessing the Equitability of Farm Program Benefitsat theat the

2004 National Public Policy Education Conference2004 National Public Policy Education Conference

St. Louis, MOSt. Louis, MOSeptember 20, 2004September 20, 2004

Agricultural Programs In A TimeAgricultural Programs In A Timeof Budget Concernsof Budget Concerns

Members of the House Agriculture Committee in Members of the House Agriculture Committee in the 108the 108thth Congress Represent Many Agricultural Congress Represent Many Agricultural

RegionsRegions

Total Federal Deficit or Surplus, 1981-Total Federal Deficit or Surplus, 1981-2014F2014F

Federal On & Off - Budget Deficit(- ) or Surplus

Actuals: 81- 03; CBO Sept '04 Baseline: 2004+

-$500

-$400

-$300

-$200

-$100

$0

$100

$200

$300

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Fiscal Year

$ B

illion

Surplus

Deficit

On- & Off-Budget Federal Deficit or On- & Off-Budget Federal Deficit or Surplus, 1981-2014FSurplus, 1981-2014F

Federal On & Off - Budget Deficit(- ) or Surplus

Actuals: 81- 03; CBO Sept '04 Baseline: 2004+

-$700-$600-$500-$400-$300-$200-$100

$0$100$200$300$400

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Fiscal Year

$ B

illio

n

On-Budget Off -Budget Total

Surplus

Deficit

Federal Deficit or Surplus as % GDP, 1981-Federal Deficit or Surplus as % GDP, 1981-2014F2014F

Deficit(- ) or Surplus as % GDP

Actuals: 81- 03; CBO Sept '04 Baseline: 04+

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Fiscal Year

Total as % GDP On-Budget as % GDP

Surplus

Deficit

Federal Debt (and GDP), Federal Debt (and GDP), 1981-2014F1981-2014F

GDP, Total Federal Debt Held by the Public, & Debt Held in

Gov't.Accts. Actuals: 81-03; CBO Sept '04 Baseline: 04+

$0

$2,500

$5,000

$7,500

$10,000

$12,500

$15,000

$17,500

$20,000

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Fiscal Year

$ B

illio

n

Fed Debt Held by the Public Fed Debt in Gov't. Accts. U.S. GDP

Federal Debt as % GDP, 1981-2014FFederal Debt as % GDP, 1981-2014F

Total Federal Debt, Debt Held by the Public,

& Debt Held in Gov't Accts. as % GDP. Actuals: 81- 03; CBO Sept '04 Baseline: 04+

0%

10%

20%

30%

40%

50%

60%

70%

80%

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13Fiscal Year

$ B

illion

Total Debt Debt Held by Public Held in Gov't Accts.

When Extra Funding Was Provided for theWhen Extra Funding Was Provided for the2002 Farm Bill, the Federal Budget was2002 Farm Bill, the Federal Budget was

Projected to be in SurplusProjected to be in Surplus

Total Federal Surplus (+) or Deficit (- )

by Time of Projection

-600.0

-400.0

-200.0

0.0

200.0

400.0

600.0

800.0

1,000.0

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Fiscal Year

$ B

illi

on

Actuals as of Sept 2004 J an 2001 CBO Proj. Sept 2004 Baseline

Surplus

Deficit

The Estimated Costs of Commodity Group Proposals The Estimated Costs of Commodity Group Proposals Substantially Exceeded Extra Funds Made Available Substantially Exceeded Extra Funds Made Available

for the 2002 Farm Billfor the 2002 Farm Bill

Extra Funding for FY 2001 - 2011

Extra Funds:

$79 Billion

Farm Group

Requests:

$261 Billion

0

50

100

150

200

250

300

350

$ B

illion

Budget ReconciliationBudget Reconciliation

Sharing the Pain of Cutting Federal Sharing the Pain of Cutting Federal Spending on Mandatory Programs to Spending on Mandatory Programs to

Reduce the Deficit.Reduce the Deficit.

• Budget ReconciliationBudget Reconciliation: Instructions in the Congressional : Instructions in the Congressional Budget Resolution to authorizing committees to draft Budget Resolution to authorizing committees to draft changes to existing laws to achieve specified reductions changes to existing laws to achieve specified reductions in “mandatory spending.”in “mandatory spending.”

• Mandatory Programs for AgricultureMandatory Programs for Agriculture• Under the jurisdiction of the House Ag CommitteeUnder the jurisdiction of the House Ag Committee• Typically multi-year programs such as under the farm Typically multi-year programs such as under the farm

billbill• Food stamps, commodity program, and conservation Food stamps, commodity program, and conservation

program funding are major mandatory spending program funding are major mandatory spending categories.categories.

• All multi-year mandatory funding is provided up front All multi-year mandatory funding is provided up front when the farm bill or other House Ag Committee bill is when the farm bill or other House Ag Committee bill is passed.passed.

Budget ReconciliationBudget Reconciliation & Discretionary Spending (Appropriations) & Discretionary Spending (Appropriations)

• Discretionary Spending (Appropriations) for AgricultureDiscretionary Spending (Appropriations) for Agriculture• Under the jurisdiction of the House Appropriations Under the jurisdiction of the House Appropriations

Committee and the Agricultural Appropriations Committee and the Agricultural Appropriations SubcommitteeSubcommittee

• Programs and funding are reviewed every year. Programs and funding are reviewed every year. • Agency salaries and expenses and research funding are Agency salaries and expenses and research funding are

major discretionary spending categories.major discretionary spending categories.• Funding typically is provided one year at a time in an Funding typically is provided one year at a time in an

annual appropriations bill. annual appropriations bill.

• The Budget Resolution specifies a maximum level for The Budget Resolution specifies a maximum level for appropriations that may be lower than in prior years but appropriations that may be lower than in prior years but cutting discretionary spending is done outside of cutting discretionary spending is done outside of reconciliation in regular appropriations bills.reconciliation in regular appropriations bills.

Budget Reconciliation (Continued)Budget Reconciliation (Continued)

• Instructions include how much each committee must cut and Instructions include how much each committee must cut and over what overall time period. (e.g., 5, 7, or 10 years)over what overall time period. (e.g., 5, 7, or 10 years)

• May also specify a required cut in the first year and/or the first May also specify a required cut in the first year and/or the first several years (e.g., years one through five of a ten year bill).several years (e.g., years one through five of a ten year bill).

• Programs that are cut will need to be re-authorized for the time Programs that are cut will need to be re-authorized for the time period covered by the cuts.period covered by the cuts.

• Prior Budget Recon. Bills: 1997, 1996, 1995, 1993, 1990, 1989, Prior Budget Recon. Bills: 1997, 1996, 1995, 1993, 1990, 1989, 1987, 1985, 1983, 19811987, 1985, 1983, 1981

Budget Reconciliation (Continued)Budget Reconciliation (Continued)

• Cuts are made from baseline spending—CBO’s projections (with Cuts are made from baseline spending—CBO’s projections (with any Budget Committee Adjustments) of mandatory spending any Budget Committee Adjustments) of mandatory spending over the next 10 years under the assumption that current laws over the next 10 years under the assumption that current laws continue.continue.

• Only reduced spending caused by legislated changes are Only reduced spending caused by legislated changes are credited—No credit is given for lower than expected costs from credited—No credit is given for lower than expected costs from changes in market conditions or USDA implementation decisions changes in market conditions or USDA implementation decisions different than expected.different than expected.

• Cuts can come from any program under the jurisdiction of the Cuts can come from any program under the jurisdiction of the Ag Committees: commodity, conservation, crop insurance, Ag Committees: commodity, conservation, crop insurance, trade, rural development, research, foods stamps, or forestry. trade, rural development, research, foods stamps, or forestry.

• The 10-year mandatory baseline for programs under the The 10-year mandatory baseline for programs under the jurisdiction of the House Ag Committee is about $540 billion.jurisdiction of the House Ag Committee is about $540 billion.

• If reconciliation occurs, guessing that Ag Cuts will not be less If reconciliation occurs, guessing that Ag Cuts will not be less than The FY 04 House Proposed Level of $18.6 billion.than The FY 04 House Proposed Level of $18.6 billion.

Budget Reconciliation (Continued)Budget Reconciliation (Continued)

• Levels of Cuts are determined by the Budget Committees (but must Levels of Cuts are determined by the Budget Committees (but must be at absolute and relative levels that can pass the House and be at absolute and relative levels that can pass the House and Senate).Senate).

• Budget Committee decisions can be based on various factors but it is Budget Committee decisions can be based on various factors but it is likely that the higher the spending in the baseline, the higher the likely that the higher the spending in the baseline, the higher the required cuts.required cuts.

• Cuts must be prospective—i.e. cuts in future contracts, not current Cuts must be prospective—i.e. cuts in future contracts, not current contracts. Signed long-term contracts cannot be cancelled to get contracts. Signed long-term contracts cannot be cancelled to get savings.savings.

• So be careful when people say that “We’ve got to push So be careful when people say that “We’ve got to push implementation and get contracts signed to get a higher baseline for implementation and get contracts signed to get a higher baseline for reconciliation”—especially if long-term contracts are involved.reconciliation”—especially if long-term contracts are involved.

• A higher baseline may cause higher reconciliation cuts.A higher baseline may cause higher reconciliation cuts.• The more long-term contracts that are signed, the larger the cuts must be The more long-term contracts that are signed, the larger the cuts must be

from other programs. from other programs.

Are We Having Fun Yet?Are We Having Fun Yet?

• Proposed cuts may lead to interest group wars. Every program Proposed cuts may lead to interest group wars. Every program has a constituency. has a constituency.

• Policy changes that save money may be viewed as more attractive Policy changes that save money may be viewed as more attractive than they otherwise would be. than they otherwise would be.

• Can lead to “bad” policy if policies are designed to capture quirks Can lead to “bad” policy if policies are designed to capture quirks in CBO baselines or estimating assumptions. in CBO baselines or estimating assumptions.

• Programs with perceived problems could be viewed as likely Programs with perceived problems could be viewed as likely candidates for cutting. candidates for cutting.

• Cost trade-offs and savings opportunities can be heavily Cost trade-offs and savings opportunities can be heavily dependent on CBO Baselines and Scoring. dependent on CBO Baselines and Scoring.

CBO’s Baseline Projections of Future Program Costs CBO’s Baseline Projections of Future Program Costs Change Over Time—Increasing for Some Programs Change Over Time—Increasing for Some Programs

and Decreasing for Others (Total CCC Costs)and Decreasing for Others (Total CCC Costs)

CBO's Total CCC Costs (& NRCS Conservation), FY 2002 - 2011: Cumulative by FY. Latest CBO Estimate vs. Most Likely Estimate at Farm

Bill Passage (Against the March 2002 CBO Baseline)

18

40

61

81

100

118

133

149

164

179

16

34

47

61

77

94

113

133

153

173

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Fiscal Year

$ B

illi

on

At Farm Bill Passage: Mar '02 Base Latest CBO Est: Sep '04 Base

Recent CBO Baselines for the CCC Have ShownRecent CBO Baselines for the CCC Have ShownHigher Out-Year Costs than Baselines at theHigher Out-Year Costs than Baselines at the

Time the Farm Bill Was PassedTime the Farm Bill Was Passed

CBO's Total CCC Costs, FY 2002-2011: Level by FY. Latest CBO Estimate Vs. Estimate at Farm Bill Passage Against the

Updated March 2002 Baseline

18.4

21.921.2

19.918.8

17.7

15.6 15.6 15.3 15.015.9

18.2

12.713.8

16.0

17.718.5

20.4 20.3 20.0

$0

$5

$10

$15

$20

$25

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Fiscal Year

$ B

illi

on

At Farm bill Passage: Apr '01 Base Latest CBO Est: Sep '04 Base

One Reason for Higher Out-Year Cost One Reason for Higher Out-Year Cost Projections is Lower Projected Prices for Some Projections is Lower Projected Prices for Some

CropsCrops

Table 5. Corn Prices vs. Effective Target Price & Loan RateCBO Baselines: 2002 Farm Bill vs. Recent

$1.90

$2.00

$2.10

$2.20

$2.30

$2.40

$2.50

$2.60

$2.70

$2.80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Market-Year Price

$ / B

ushe

l

Apr '01 Baseline March '02 baseline March '04 Baseline

Effective Target Price Loan Rate

Table 7. Wheat Prices vs. Effective Target Price & Loan RateCBO Baselines: 2002 Farm Bill Forward

$2.60

$2.70

$2.80

$2.90

$3.00

$3.10

$3.20

$3.30

$3.40

$3.50

$3.60

$3.70

$3.80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Market-Year Price

$ / B

ushe

l

Apr '01 Baseline Mar '02 Baseline Mar '04 Baseline

Effective Target Price Loan Rate

Some Reasons Why Actual Program Costs Differ Some Reasons Why Actual Program Costs Differ From Projected Costs and Why Baselines From Projected Costs and Why Baselines

ChangeChange

• Actual market conditions differ from “average” conditions used Actual market conditions differ from “average” conditions used to estimate costs and make projections. to estimate costs and make projections.

• USDA implements programs differently than assumed.USDA implements programs differently than assumed.

• USDA uses discretionary authority that allows it to operate USDA uses discretionary authority that allows it to operate outside normal programs.outside normal programs.

• Farmers respond differently than assumed.Farmers respond differently than assumed.

• Structural change occurs.Structural change occurs.

• Consensus perspectives on future market conditions and Consensus perspectives on future market conditions and structure change.structure change.

• Developing the analytical framework for a new program with no Developing the analytical framework for a new program with no good historical analogue can be difficult. good historical analogue can be difficult.

• Mistakes are made.Mistakes are made.

Under CBO’s Current Sept., 2004 Baseline, Food Under CBO’s Current Sept., 2004 Baseline, Food Stamps Are Over Half of the Costs of Programs Stamps Are Over Half of the Costs of Programs Under the Jurisdiction of the House Agriculture Under the Jurisdiction of the House Agriculture

CommitteeCommittee

House Agriculture Committee JurisdictionCBO 10-Year Projections: FY 05-14 Budget Authority

CBO Sep 04 Baseline

$0.5

$0.6

$2.3

$5.8

$7.2

$7.5

$8.0

$37.1

$48.5

$128.9

$294.2

0 50 100 150 200 250 300 350

Comm & Rural Dev

Transportation

Forest Serv

CCC Export Prog & Guar

CCC Other (Exc Conserv.)

Rsch & Inspect.

Other Nutrition

Crop Insurance

Farmer Conservation

CCC Commodity Prog

Food Stamps

$ Billion

Differences in Total Program Costs of Different Differences in Total Program Costs of Different Crops Does Not Mean That Equity Problems ExistCrops Does Not Mean That Equity Problems Exist

(CBO Sept. 2004 Baseline)(CBO Sept. 2004 Baseline)

CCC Commodity Programs, CBO 10-Year Projections: FY 05-14 Budget Authority

CBO Sep 04 Baseline

$2.0

$2.1

$2.6

$2.9

$11.0

$15.7

$20.0

$21.9

$50.8

0 5 10 15 20 25 30 35 40 45 50 55

Tobacco

Other

Sugar

Dairy

Peanuts

Rice

Upl Cotton

Soybeans

Wheat

Feed Grains

$ Billion

CHIMPS CHIMPS Mandatory Program Cuts TakenMandatory Program Cuts Taken

by the Appropriatorsby the Appropriators

• Appropriations cuts in mandatory programs are called Appropriations cuts in mandatory programs are called CHIMPS: Changes In Mandatory Programs.CHIMPS: Changes In Mandatory Programs.

• It is against the House Rules to “legislate on appropriations It is against the House Rules to “legislate on appropriations bills.” But appropriators indirectly do so by, for example, bills.” But appropriators indirectly do so by, for example, limiting salaries and expenses to carry out a conservation limiting salaries and expenses to carry out a conservation program of greater than $xxx million.program of greater than $xxx million.

• CHIMPS represent a one-way street—Appropriators can cut CHIMPS represent a one-way street—Appropriators can cut our mandatory farm bill programs but we can’t cut their our mandatory farm bill programs but we can’t cut their discretionary programs.discretionary programs.

• For FY 04 Ag CHIMPS were 31% of total CHIMPS. Ag For FY 04 Ag CHIMPS were 31% of total CHIMPS. Ag Appropriations are 2% of total appropriations. Appropriations are 2% of total appropriations.

• Since FY 2002, $3.1 billion has been taken from House Ag Since FY 2002, $3.1 billion has been taken from House Ag Committee programs.Committee programs.

The $1.2 Billion in Farm Bill Program Cuts in the The $1.2 Billion in Farm Bill Program Cuts in the FY 05 House Passed Bill are from Conservation, FY 05 House Passed Bill are from Conservation, Rural Development, Research, Energy, & Food Rural Development, Research, Energy, & Food

StampsStamps

$351$150

$351 $260$73 $18

$1,624

17.8%

100.0% 100.0% 100.0%

42.2%

$0

$500

$1,000

$1,500

$2,000

FarmerConservation

WatershedRehab

RuralDevelopment

Research Energy Food Stamps

$ B

illi

on

0%

25%

50%

75%

100%

Cu

t as

% o

f F

arm

Bil

l F

un

dii

ng

Appropriation Cut Remaining Farm Bill Funding Cut as % Farm Bill Funding

$100

Consequences of CHIMPSConsequences of CHIMPS

• Producers don’t get full benefits we intended when the farm Producers don’t get full benefits we intended when the farm bill was passed and that the Ag Committees paid for.bill was passed and that the Ag Committees paid for.

• Upsets the delicate balances and compromises that were Upsets the delicate balances and compromises that were struck during negotiations on the 2002 farm bill.struck during negotiations on the 2002 farm bill.

• May set up a potential fight between Ag Committees May set up a potential fight between Ag Committees seeking reconciliation cuts and Appropriators who have seeking reconciliation cuts and Appropriators who have come to depend on limiting our programs to make their come to depend on limiting our programs to make their ever tightening budget targets.ever tightening budget targets.

Another Funding Problem:Another Funding Problem:Conservation Technical Assistance for CRP & Conservation Technical Assistance for CRP &

WRP WRP

Conservation Technical Assistance is help provided to producers by Conservation Technical Assistance is help provided to producers by NRCS and 3NRCS and 3rdrd party providers in developing farm-level party providers in developing farm-level conservation plans.conservation plans.

Currently, the only way to pay for CRP and WRP Technical Currently, the only way to pay for CRP and WRP Technical

Assistance is to take from Program Funding (i.e., producer benefits) Assistance is to take from Program Funding (i.e., producer benefits) for the EQIP, FPP, WHIP, and GRP programs.for the EQIP, FPP, WHIP, and GRP programs.

Over $1 billion is needed over the next 10 years to pay for CRP and Over $1 billion is needed over the next 10 years to pay for CRP and WRP Technical Assistance.WRP Technical Assistance.

After Appropriations Cuts and Technical After Appropriations Cuts and Technical Assistance Costs, Too Little Funding is Assistance Costs, Too Little Funding is

Available to Help Producers for FY 2005Available to Help Producers for FY 2005

$720$85

$46

$190$13

$25

$215$4

$7

$75$24

$7

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EQIP FRPP WHIP

05 Remaining for Producers 05 House Approp Cut

04 Own Program TA 04 Other Program TA

$125Farm Bill, $ Mil.: $1,200 $85

The Backlog of Farmer Conservation Program Needs is The Backlog of Farmer Conservation Program Needs is Significant. Appropriations Cuts and Funding Technical Significant. Appropriations Cuts and Funding Technical Assistance from Program Funds Makes Addressing the Assistance from Program Funds Makes Addressing the

Backlog More DifficultBacklog More Difficult

J uly, 2004 Backlog of Farmer Conservation Program Needs

77%

58% 57%

76%

95%

$0

$500

$1,000

$1,500

$2,000

$2,500

EQI P WHI P FRPP WRP ** Watershed

Rehab

$ M

illio

n

0%

20%

40%

60%

80%

100%

Funding Shortf allAvail Funding af ter Tech Assist & Approp. CutFunding Shortf all as % Backlog

** HAC Minority Staff conversion of acres to costs

Conservation Technical Assistance for CRP & Conservation Technical Assistance for CRP & WRPWRP

Funding OptionsFunding Options

““Free” Money: The Senate passes the FY 2005 Conference Budget Free” Money: The Senate passes the FY 2005 Conference Budget Resolution Agreement: An adjustment to the CBO baseline Resolution Agreement: An adjustment to the CBO baseline provides the extra funding need to pay for CRP and WRP technical provides the extra funding need to pay for CRP and WRP technical assistance without cutting other programs—but only if the Senate assistance without cutting other programs—but only if the Senate passes the bill as the House has done.passes the bill as the House has done.

Use the appropriated Conservation Operations account for Use the appropriated Conservation Operations account for Technical AssistanceTechnical Assistance

CRP and WRP Internal options: CRP and WRP Internal options: CRP and WRP statutory acreage caps are reduced or CRP and WRP statutory acreage caps are reduced or funding (currently uncapped) is capped at baseline levels. funding (currently uncapped) is capped at baseline levels.

Other Issues for Which Some Other Issues for Which Some Members Seek Additional FundingMembers Seek Additional Funding

Tobacco Quota BuyoutTobacco Quota Buyout Current provisions added to the Corporate Tax Bill. Current provisions added to the Corporate Tax Bill. House bill is funded by taxpayers. Senate bill is funded by House bill is funded by taxpayers. Senate bill is funded by

tobacco product manufacturers and importers.tobacco product manufacturers and importers. Not a House Ag Committee funding concern if tax bill Not a House Ag Committee funding concern if tax bill

passes.passes.

Extension of Milk Income Loss Contract Payments.Extension of Milk Income Loss Contract Payments. Under Farm Bill authorization, scheduled to expire on Sept. Under Farm Bill authorization, scheduled to expire on Sept.

30, 2005.30, 2005.

2007 Farm Bill2007 Farm Bill

House Ag Committee will likely start hearings on a new House Ag Committee will likely start hearings on a new farm bill in 2005farm bill in 2005

As with the 2002 farm bill, we anticipate a Long lead As with the 2002 farm bill, we anticipate a Long lead time with a number of field and Washington hearings.time with a number of field and Washington hearings.

Contact InformationContact Information

Craig JaggerCraig JaggerChief EconomistChief Economist

House Committee on AgricultureHouse Committee on Agriculture1301 Longworth HOB1301 Longworth HOB

Washington, DC 20515Washington, DC 20515

202 225-1130 (o)202 225-1130 (o)202 225-4464 (f)202 225-4464 (f)

craig.jagger@mail.house.govcraig.jagger@mail.house.gov